What do invoice factoring companies do?
Invoice factoring companies are financing providers that buy a business's unpaid B2B invoices at a discount, advance most of their value, and collect payment from the customer. To compare them, compare the cash you receive and the fee for the days your customer actually takes to pay.
Factoring is the sale of an invoice, not a loan, according to Commera's receivables financing page. The same page puts the advance commonly at 80% to 90% of the invoice. Fees commonly run 1% to 3% per 30 days on the face value, per that page. You get the balance, minus the fee, when your customer pays.
Eligibility, reserves and notification are covered in our invoice factoring guide. This page covers the next step. You have offers on the table and need to choose a factor.
Commera is a broker, not a lender. We compare offers from our lender partners.
What should you compare between factoring companies?
Factoring companies differ on seven terms, and the headline fee is only one of them. Ask each factor for the same items in writing. Then line them up side by side.
| Term | What to ask | Why it matters |
|---|---|---|
| Advance rate, % of invoice | What share of each invoice do you pay on day 0? | Sets the cash you get now |
| Fee and how it accrues | Is the fee charged in flat blocks of days or by the day? | Decides what a late payment costs you |
| Reserve and when it is released | When is the reserve paid out, and what is deducted first? | The reserve is the rest of your money |
| Recourse | What happens if the customer never pays? | Decides who carries the credit risk |
| Minimums, contract length, termination | Is there a volume minimum, a fixed term or an exit fee? | Can tie you to the factor after the need passes |
| Setup and other fees | Which fees apply on top of the discount? | Raises the real cost |
| Speed, days | How long do the first funding and later invoices take? | Matters when payroll is due |
On speed, Commera's receivables financing page says first funding typically takes 3 to 10 business days while the factor verifies your customers. After setup, new invoices fund in 24 to 48 hours, per the same page. Every timeline is subject to underwriting.
Recourse decides who absorbs a customer that never pays. Our freight guide explains recourse and nonrecourse factoring, and the same logic applies outside trucking.
A low fee with a slow reserve release can cost you more than it looks. Read the fee line and the reserve line together.
Worked example: two offers on the same $100,000 invoice
Two offers on the same invoice can pay you different cash on day 0 and cost different amounts by the day your customer pays. In this Commera illustrative calculation, the customer pays on day 45, and Offer B costs less despite its setup fee.
Methodology: Commera illustrative calculation, not an offer and not a real deal. The terms are hypothetical and sit inside the ranges on Commera's receivables financing page. There is one $100,000 invoice and one customer. The invoice is not disputed, and recourse is never triggered.
Offer A advances 85% and charges 2.5% for the first 30 days plus 1% for each further 10 days or part of them. Offer B advances 90% and charges 0.08% per day. It also withholds a $300 setup fee from the advance. The reserve minus fees comes back on the day the customer pays.
Est. APR in this illustrative calculation is simplified: fees ÷ cash paid on day 0 × 365 ÷ days to payment. That follows the single advance, single payment logic of NY FSL §806(c). An APR disclosed by a provider may differ.
In New York, the disclosed estimate assumes the customer pays on the invoice due date.
| Term | Offer A | Offer B |
|---|---|---|
| Advance rate, % | 85 | 90 |
| Fee schedule | 2.5% first 30 days, 1% per 10 days after | 0.08% per day, $300 setup |
| Cash on day 0, $ | 85,000 | 89,700 |
| Fees at day 45, $ | 4,500 | 3,900 |
| Reserve rebate at day 45, $ | 10,500 | 6,400 |
| Total received, $ | 95,500 | 96,100 |
| Est. APR, % | 42.94 | 35.27 |
Offer B puts more cash in your hands on day 0. It also leaves you with more in total once the customer pays.
Offer A holds back a larger reserve, so more of your money waits for the customer. Its fee moves in blocks. Day 41 already costs as much as day 50.
The setup fee is easy to miss. Offer B withholds it from the advance, so it cuts the cash on day 0 and lifts the estimated APR. Ask every factor for the cash on day 0 after all withheld fees, not just the advance rate. That figure is what you can spend.
Worked example: when your customer pays at 30, 45 or 60 days
The factor that costs less depends on how fast your customer pays. In this Commera illustrative calculation, Offer A costs less if the customer pays on day 30. Offer B costs less on day 45 and day 60. Your customers set the price.
Methodology: The same two offers and assumptions as the previous example, with only the payment day changed. Fees include Offer B's setup fee. The total you receive in each case is the invoice minus the fees. The estimated APR uses the same simplified formula.
| Customer pays on day | Offer A fees, $ | Offer A est. APR, % | Offer B fees, $ | Offer B est. APR, % |
|---|---|---|---|---|
| 30 | 2,500 | 35.78 | 2,700 | 36.62 |
| 45 | 4,500 | 42.94 | 3,900 | 35.27 |
| 60 | 5,500 | 39.36 | 5,100 | 34.59 |
In this illustrative calculation, Offer A charges only its first block on day 30, $2,500 against $2,700 for Offer B. After that, Offer A adds a full block for each 10 days or part of them. Offer B keeps adding the same small amount every day.
The estimated APR does not move in a straight line. Offer A's estimated APR is lower on day 60 than on day 45, because the last block is spread over more days. The dollar fee still grows.
Compare offers on your own average payment period, not on the invoice terms. A customer on net 30 who pays in 45 days makes Offer B the cheaper factor in this example.
New York allows a provider to estimate the term from the customer's payment history over the previous twelve months or less, per NY FSL §806(c). Do the same with your own records. Pull the payment history for each customer you plan to factor.
How do you check a factoring company before you sign?
Check a factoring company on two things: the lien it may file and the written offer. Read both before you sign. A sale of accounts falls under UCC Article 9, per UCC §9-109(a)(3).
Ask the factor whether it will file a financing statement against your business, and what the filing will cover: only the invoices you sell, or all of your business assets. Our guide to the UCC lien explains what a filing means for your business.
In New York, a provider covered by the commercial finance disclosure law must give you specific disclosures when it extends a specific offer for a factoring transaction, under NY FSL §806. They include:
- the amount paid to you, and the amount disbursed after any fees deducted or withheld
- the finance charge
- the estimated annual percentage rate
- the total payment amount
- a description of all other potential fees and charges that you can avoid
- a description of the receivables purchased and any additional collateral requirements or security interests.
For a factoring transaction, the finance charge includes the discount taken on the face value of the receivables, per NY FSL §801. The discount is a cost, even when nobody calls it interest.
Outside New York, ask for the same figures in writing anyway. This section describes the statutes and is not legal advice.
Example: what to get in writing
- Cash on day 0: The amount you receive after every fee withheld at funding, not just the advance rate.
- Fee schedule by day: The fee for each day or block, written out to the day your slowest customer usually pays.
- Reserve release: The date and conditions for paying out the reserve, with every deduction taken from it.
- Lien scope: Whether the financing statement covers only the purchased invoices or all of your business assets.
- Exit terms: The contract length, any volume minimum and the cost of ending the agreement early.
When is a factoring company the wrong choice?
A factoring company is the wrong choice when your customers pay slowly, dispute invoices or are consumers. It is also a poor fit when you need a revolving line rather than cash against specific invoices.
Slow payers raise the fee, as the second worked example shows. Disputes add risk. With recourse factoring, you buy the invoice back if the customer does not pay, per Commera's receivables financing page. The same page notes that non-recourse rarely covers disputes.
Consumer sales are the other mismatch. B2C revenue without invoices points away from factoring, according to Commera's receivables financing page.
If you are weighing factoring against an advance on future sales, read MCA vs. invoice factoring. For invoice factoring for small business and how it is set up, see our receivables financing page. To see which products fit your file, check your funding options.
Broker disclosure: Commera Finance is a broker, not a direct lender. Financing providers make their own eligibility, underwriting, approval, pricing, and term decisions.
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